Business

Decisioning platforms can springboard ESG in financial services

Published

7 months ago

March 8, 2023

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Matt Cox, Vice President, FICO looks at how businesses need to back up ESG credentials with flexible systems that enable rapid ingestion of data sets

The implementation of ESG measures in the UK and across the world faced challenges last year, but that did not stop organizations hijacking the title and splashing it across their propositions in an attempt to market themselves in a positive light.

It’s clear why this happens. For example, in a world where there’s a significant skills gap, environmental and social considerations can be a decider between a prospective employee accepting or rejecting an offer. Customer choice and loyalty can also be swayed by ESG credentials. At the same time, the spreading of disclosure requirements is driving investors in shaping organizations’ attitude to strategically embrace a sustainable profile. However, most recent reports highlight how only 5% of European firms have credible decarbonization plans in place.[i] Over-inflated claims have developed to the point where the FCA set out new rules to establish the UK as a leader in anti-greenwashing[ii]. The rules target exaggerated or misleading claims around environmental credentials.

Decisioning platforms to propel ESG efforts

In financial services, much of the ESG agenda today is delivered at the corporate level and will address subjects like where the bank invests. While ESG strategic commitments and policy frameworks have been fine-tuned at that level, and new type of sustainable finance products have been brought to market, much work is still needed to connect and optimise the operating framework in between. The latest CDP – Oliver Wyman report shows that, with respect to transition to a low-carbon economy (a subset of ESG), 70-80% of organizations are still lacking a sound governance structure to execute their strategic commitments.[iii]

Forecasts show that while 2022 was a difficult year for ESG efforts, a change is coming and there will be an increased focus on bringing ESG insight into more granular lending and investment decisions. This will include:

Implementing policies and decision-making criteria in line with specific environmental objectives.

Integrating environmental objectives into customer engagement strategies to support and encourage the sustainability transition of clients, in order to reduce indirect emissions (those coming from the business model and external stakeholders rather than internal operations).

This will trigger a need for flexible decisioning platforms that allow new data sets to be quickly loaded and assessed.

Many leading banks now have active climate change programmes and begun equipping themselves with tactical toolkits. This isn’t a side project for them, it’s integral to their mission. And it’s made possible in part by digital transformation projects.

An environmentally focused organization is also important to the next wave of customers, where more than 50% of them is already expecting to embrace a sustainability-conscious lifestyle[iv]. Today’s youth will not bank with any organization that cannot handle all their needs digitally and showcase the right sustainability credentials. Your future customers are paying attention. Financial institutions will need to adapt to better serve the environment in the years ahead and they need to consider what tools they will use to fulfil those plans.

For ESG programmes to hit their targets and make a difference where it is needed, there must be increased innovation in the use of alternative data across all kinds of lending. This data will include everything from satellite-driven CO2 emission detections (needed to assess and report on indirect, financed emissions) to assessing the changing number of rainy days across regions to the effect of changing behaviour of climate systems (in order to assess and model the risk of physical climate risks affecting both their own facilities and portfolio assets). While such dara are needed for disclosure, they can also be factored into the management of customer relationships, potentially affecting onboarding, pricing, marketing or advisory engagements.

As a result, organisations will increasingly need flexible data (adding more than 500 data points to traditional analysis) and decisioning platforms that enable these new data sets to be ingested, assessed rapidly for their validity and then deployed into decision-making processes.

We have seen banks rushing to cover immediate needs, for example assessing the policy alignment of properties backing mortgages or the ESG profiles of specific firms. But standalone and partial views, rarely built internally, of ESG-related risks harms the proper understanding and management of those integrated risk metrics that financial institutions are required to disclose, explain and address in their business model.

Using decision technology to address environmental issues

It’s difficult to associate debt collection with saving the planet. But one of FICO’s European customers, Hoist Finance is making that connection. Hoist used to manage customers using 14 different systems. Now they use one – FICO Platform.

Hoist have massively digitized their operations as a result, and have calculated that they save 442 tons of carbon for each 10% of customers using the automated process. This reduces the organization’s carbon footprint for every digital resolution by 97%.

In addition to cases like this where financial services firms are directly addressing their carbon footprint, there are also opportunities for banks to support their business customers’ sustainability journeys. It is helpful, therefore, to see how firms operating in various sectors such as logistics and renewable energy are using decision technology to reach ESG goals.

Mexico’s Traxión, the leading mobility and logistics company in Mexico, has used FICO route optimization technology to help it use fewer vehicles, save on fuel costs, cut emissions and reduce fleet wear and tear. The company has already saved 2.9 million kilometres in travel, USD$725,000 in costs and 458 metric tons of emissions after implementing just 11% of the optimal solution. Traxión is on track to reduce empty trips by 20 percent which will save it more than 10 million kilometres, USD$2.5M in costs and an impressive 1,580 metric tons of emissions once its operations are fully optimized.

Denmark’s Ørsted, the world’s leading offshore wind farm developer, has used FICO® Xpress Optimization to develop a novel digital solution for designing an important part of their wind farms. This has enabled the Danish company, which has 30 wind farms in operation or under construction, to achieve significant savings while reducing overall design time and improving its ability to investigate different scenarios. This allows Ørsted to roll out wind farms faster than they could before.

Playing a role in implementing ESG-focused principles is about more than just keeping up with legislation. It is essential to evoke a sense of responsibility as change needs to happen quickly; ESG ties everyone together.

[i] https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2023/feb/cdp-europe-report.pdf

[ii] https://www.cityam.com/fcas-new-sustainability-rules-to-establish-uk-as-world-leader-on-anti-greenwashing/

[iii] https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2023/feb/cdp-europe-report.pdf

[iv] https://www.simon-kucher.com/sites/default/files/studies/Simon-Kucher_Global_Sustainability_Study_2021.pdf

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Business

How can law firms embrace automation and revolutionise their payments?

Published

21 hours ago

September 28, 2023

editorial

Attributed to: Ed Boal, Head of Legal at Shieldpay

Once again, AI is dominating international headlines. This time, it’s due to a closed-door meeting this month between tech leaders and US senators to discuss the technology’s regulation.

AI and automation isn’t just for the likes of Big Tech. We’re seeing predictive and automated technologies transform almost every sector and the legal industry is no exception. In fact, recent research from HBR Consulting found that 60% of law departments had implemented a legal data analytics tool last year and more than 1 in 4 indicated they were using AI for at least a single use case.

However, adoption isn’t without its challenges. Reticence remains among some and there’s also the danger of ‘transformation fatigue’ slowing real progress. If law firms want to reap the many benefits of automation – including revolutionising their payment processes – these challenges need to be carefully considered and thoughtfully addressed.

An area of great opportunity

Often seen as conservative, the legal industry has been gradually warming up to the idea of automation and technology.

While some pioneering firms have been quick to embrace automation tools, others remain cautious about disrupting their established workflows. As we navigate this landscape, it’s clear that certain areas of legal services are ripe for innovation.

One area is contract management. The process of drafting, reviewing, and managing contracts has traditionally been time-consuming and prone to human errors. Automation can alleviate these pain points by streamlining the entire lifecycle of contracts, from creation to renewal, thereby enhancing efficiency and reducing risks.

Another promising domain is legal research. Thanks to advancements in natural language processing and machine learning, legal professionals can now leverage AI-powered research tools that analyse vast volumes of legal data to provide accurate insights and case precedents swiftly.

But, while progress is undoubtedly being made, the legal sector still lags other sectors when it comes to innovation.

What’s getting in the way of progress?

This isn’t always down to a resistance to change. Often, it’s a result of firms spreading their resources too thinly across numerous technology initiatives.

Ed Boal

Attempting to tackle everything at once can result in ‘transformation fatigue’, where the benefits of individual innovations get diluted – leading to frustration and slower progress.

Before legal firms embark on digital transformation projects, a critical first step is introspection. Recognising and acknowledging areas where legacy processes and manual tasks still hold sway is paramount to optimising the impact of automation.

For many firms, archaic practices continue to consume valuable time and resources, diverting attention from higher value, billable tasks. One often-overlooked area is payments.

Legal firms play a critical role in complex transactions, from M&A and real estate deals to litigation and arbitration payments. The associated admin and processes represent a drain of firms’ time and resources. Spanning everything from collating stakeholder payment details and verifying payee identity to ensuring compliance with Know Your Customer (KYC) and Anti Money Laundering (AML) regulation, this adds unnecessary stress for lawyers – who would rather dedicate their time and expertise to their clients’ legal needs.

The repercussions of such time-consuming financial processes reverberate throughout the entire organisation. Administrative burden weighs heavily on the team, affecting productivity and ultimately, the bottom line: recent research from Shieldpay, surveying the UK’s Top 100 law firms, found that almost 1 in 3 (32%) say KYC collection and verification checks take 4-9 working days.

At the same time, firms are exposed to significant financial risk which can make handling client funds a costly endeavour. Not only are they penalised with fines if found to be in breach of stringent client account rules but firms are also subject to hefty premiums for Professional Indemnity (PI) insurance. No wonder 73% of all legal professionals and 90% of junior law professionals are concerned about the risks and time costs associated with holding client funds.

Revolutionising payment transactions

In short, manual payment processes are more than just an inconvenience for modern law firms. They can damage relationships with clients – who have come to expect a fast, painless and automated payout experience in a digital world – and impede revenue generation by tying up top talent in an endless cycle of paperwork and (unbillable) admin.

So how can firms take the pain out of legal payments?

Fortunately, new payment technologies have emerged as a formidable ally. Third-party payment providers offering solutions for law firms, such as escrow and paying agent services for specific transactional deals, or more embedded payment solutions such as managed accounts (TPMAs) – i.e. outsourced client account functions – offer secure and instant transactions, while prioritising transparency and automation.

TPMAs operate as an escrow payment service in which the third-party – a licensed external payments partner – receives and disburses funds on behalf of a firm and their client(s).

With advanced encryption ensuring data security, working with a regulated payment partner means legal professionals and their clients can engage in financial transactions with peace of mind – while law firms benefit from improved operational efficiency.

And the advantages don’t stop there. Enhanced transparency builds a sense of confidence and trust, while the elimination of manual data entry and repetitive tasks allows legal professionals to devote more time to legal services and fostering stronger relationships with their clients.

AI and automation has much to offer the legal sector. But its adoption must be carefully planned in order to avoid transformation fatigue that risks stalling progress altogether. With typically shallower pockets than Big Tech giants, it’s important for law firms to focus their efforts on specific areas that could benefit from automation, rather than rush to overhaul their entire way of working, all at once. This controlled phase-out is the key to avoiding adoption frustration, seeing a real impact on profits and productivity and setting firms up for real, lasting change.

Business

In-platform solutions are only a short-term enhancement, but bespoke AI is the future

Published

2 days ago

September 27, 2023

editorial

By Damien Bennett, Global Director, Principal Consultant, Incubeta

If you haven’t heard anyone talking about artificial intelligence (AI) yet, then where have you been? Conversations about AI and its advantages to society have been a key talking point over recent months, with advances being made in the generative AI race and ChatGPT opening a whole plethora of possibilities. Many have highlighted the advantages of AI, but notably it’s ability to create human-like content.

But these discussions have only scratched the surface of what AI is capable of doing. It is for far more than just essay writing, adding Eminem to your rave and photoshopping dogs into pictures.

In marketing, we have been using AI for years, for everything from analyzing customer behaviors to predicting market changes. It’s enabled us to segment customers, forecast sales and provide personalized recommendations, having a huge impact on how our industry works.

It is even, for the more savvy marketers of the world, becoming a key tool in maximizing budget efficiency – which is apt, considering over 70% of CMOs believe they lack sufficient budget to fully execute their 2023 strategy.

Now, as AI becomes more intelligent, the number of efficiencies it can unlock continues to rise. Not only can it help brands get the most out of their available resources and identify any areas of waste, but it can also help highlight new opportunities for growth and maximize the impact of your budget allocation.

The trick, however, is to veer away from the norm of using in-platform solutions with a one-size-fits-all approach and create your own, bespoke solutions that are tailored to your business needs.

Pitfalls of in-platform solutions

In-platform solutions aren’t by any means a bad thing. In fact, built-in AI tools have become increasingly popular, owing to their ease of integration, user-friendly interfaces and minimal set up requirements. They come pre-packaged with the platform, offering the user the ability to leverage AI technologies without the need for in-depth technical expertise or the upfront cost of building a solution from scratch.

However, the streamlined and accessible nature of in-platform AI solutions comes at the expense of complexity and customization. They are designed to serve a broad user base, but for the most part are built using narrow AI solutions with predefined features and workflows.

This makes them great for assisting with common AI tasks, but they lack the flexibility to tailor functionality towards unique business requirements or innovative use cases, limiting the potential efficiencies and cost savings that can be unlocked. Additionally, if a business’ competitors are using the same platform, they are probably using the same AI solution, meaning any strategic advantage gained from these will be reduced.

Bespoke AI solutions, on the other hand, may carry a higher initial investment – but can offer a significantly more attractive ROI over a short amount of time.

Why customized and adapted AI is the key

The difference between bespoke AI and in-platform solutions is similar to that between home cooked food and a microwave meal. Yes, it is more time consuming to prepare, and yes it likely carries more of an upfront cost, but the end result is going to be far more appealing and will carry more long-term value (financially… not nutritionally).

That’s because bespoke solutions, by nature, will have been tailored to address your brands specific needs and challenges. These custom-built tools allow for much greater efficiencies by streamlining workflows across different channels, automating more complex tasks, and providing deeper, more relevant insights.

The increased level of optimization can significantly improve productivity and reduce operational costs over time, offering a higher ROI. The increased flexibility of bespoke AI also allows brands to implement innovative use cases that can significantly differentiate them from their competitors.

The data analyzed can be specifically chosen to match business requirements, as can the outputs of the AI tool, providing a significant advantage when understanding and acting on the insights provided.

Additionally, these tools are, by nature, more scalable. They can be updated, upgraded and expanded as needs change, ensuring they continue delivering value as the business grows. They can also be designed to integrate with any existing IT infrastructure, from CRM systems and databases to marketing platforms and sales tools – leading to more efficient and effective decision-making.

Managing finances with AI

It’s no secret that AI in marketing automation has, and will continue to, revolutionize the way marketing is done. It has a bright, if slightly terrifying, future and can help CMOs to unlock new efficiencies, maximize the impact of their budgets and increase their ROI. And as this technology becomes more advanced, its impact will only increase.

But we already know that…and so does everyone else.

So, in order for businesses to make themselves stand out from the crowd , they must look to fully adopt the power of AI. Creating a customized and unique AI solution could be the way to set yourself apart from your competitors. A bespoke AI tool can provide brands and businesses with features unique to them and their business needs. As a result, companies will benefit from more useful data and better results to make more data-driven decisions for their business. Ultimately, this will help brands to maintain a competitive edge over their competitors, deliver ROI and most importantly optimize their budgets.